Finra’s Additional Private-Placement Disclosure
Finra Proposes Broader Private-Placement Disclosure Rules
NEW YORK -(Dow Jones)- A proposal by the Financial Industry Regulatory Authority would require all brokerage firms participating in private-placement sales to disclose potential conflicts of interest.
Finra, Wall Street’s self-policing organization, is requesting comment on a proposal that would require conflict-of-interest disclosures, among other things, by brokerage firms selling private placements that are issued by an affiliated company, according to a regulatory notice posted on its website late Tuesday. Current rules require disclosures in cases where the securities are issued by a brokerage firm itself or an entity that controls the firm.
Private placements are sales of unregistered securities that are supposed to be marketed only to institutions and sophisticated individuals who meet certain income and net-worth requirements.
The present rule, says Finra, fails to address the “vast majority” of private placements, as issuers often aren’t broker dealers or their controlling entity, according to the regulatory notice. The regulator is considering the proposal ” to provide investors with additional protection from fraud and abuse,” according to the notice. Certain exceptions, however, would apply.
All brokerages that sell private placements issued by an affiliated company, instead of by itself or a controlling company, would be required to alert investors about potential conflicts of interest, according to the proposed rule.
Finra refers to “several recent” enforcement cases concerning private placements in which a brokerage was affiliated with the issuer and that relationship lead to “misuse or conversion of offering proceeds” by the brokerage.
The regulator is also proposing a broadening of the term “compensation” to ” selling compensation” so that it will encompass any remuneration paid directly or indirectly to firms and brokers in connection withe privatplacements.
Comments are due to Finra by March 14.
-By Suzanne Barlyn, Dow Jones Newswires
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